RIGA - Concerns about the stability of the Latvian currency have resulted in an increase of financial unease and stress among banks and their clients alike, not least among students taking loans to complete university. With the rise of the RIGIBOR index, student loan payments with variable interest rates, which are tied to this index, have almost doubled since September 2008.
The Ministry of Education of Latvia reports that last year Latvia had 125,350 students in higher education, which meant a ratio of 545 students to every 10,000 inhabitants. Of these, 73 percent were paying for their studies. More than two thirds were also studying in state universities. Certainly, most students who paid tuition did so with some financial aid.
An average bachelor's degree program in Latvia costs from 1,100 lats (1,570 euros) to 1,500 lats per year, show various institutions' Web pages, with studies lasting three to four years. If students arrange their tuition to be paid with a state guarantee, they receive a fixed interest loan and can expect a monthly payment of approximately 20 lats, starting one year after they graduate. They also get a 30 percent waiver for every child they or their spouse have during the time of their loan repayment. This seems reasonable and does not keep most students up at night.
My own story is slightly different. Choosing to study abroad and not being able to wait for 2-3 months for a state guaranteed loan, I opted for a private loan at Swedbank. The first inconvenience with this was in having to pay interest while I was still studying, on the entire amount of the loan, which was 8,000 lats. This would have made for a monthly 80 lats' payment while in full time education. Not backbreaking, but rather uncomfortable for me, and just plain unreasonable in terms of it being a student loan. I decided to start repaying the base sum, as this increased my monthly payment only slightly.
I noticed my interest rising after a couple of months as the RIGIBOR rate tipped 16 percent, bringing my monthly interest up to 21 percent. Again, this while still in full time higher education. I am back from my studies now and find myself in one of the worst job markets Latvia has seen in a long time, so I am considering going back to school (provided it is funded), or perhaps working abroad. I do not see myself being able to pay my monthly dues and also, say, have a mortgage or rent in Latvia.
While my antics could easily be dismissed as simply failing to read the fine print, I still believe that burdening anyone just out of school with a loan payment probably half their salary, by today's standards, is very nearsighted by the banks. There is a lack of investment in people in Latvia, and the people seemingly pick up on that. Many graduates leave, never to return again, costing much more to the country in losses than what their loan payments add.
Those who do not leave to study abroad often work full time while also in full time education. This lowers the education standard. Anthropologist Klavs Sedlenieks writes in his blog that this creates a vicious cycle where the value of learning is decreased, and uninterrupted full time studies are seen as somewhat of a luxury, if not laziness.
Most Scandinavian countries, for example, offer free education, which is a goal to strive for but not necessarily feasible in Latvia today. Denmark also allocates scholarships to anyone in higher education. Finland, however, has recently passed a law that will allow higher education institutions to collect tuition fees from non-EU/EEA students. Similar developments are expected in Sweden. As for locals and us in Europe, education is technically still free there, not taking living costs into account.
On the one hand, Latvia is on the upturn as well, offering hefty financial aid for doctoral students; on the other, a situation like mine completely contradicts this.
It seems that it is understood that people will go for a bachelor's degrees no matter what, so, we might as well charge them for it. Master's degrees receive less popularity, and are kind of a no-man's land. Sedlenieks compares its quality in Latvia to adult evening courses, where tired workers drop in on their way home and are not really expected to give it more than necessary. If one makes it to the doctoral level, things are a bit brighter again, and the state is willing to offer support, be it in essence 'EU' support.
The probability of making it through all three levels is not great, and that is, naturally, how it is supposed to be. However, it would be so much appreciated if it were made that bit easier for those who want it.
Understandably, banks also have limited flexibility in the current situation, but perhaps it would pay off in the long run to sieve through the private loans, discerning those taken for education and applying conditions more similar to state guaranteed loans. This would not only render the repayment process, well… realistic, but could be one of the first steps toward long-term investment in people in Latvia.
Instead of proverbially dragging students and recent graduates behind a slightly limp but steadfast horse on an increasingly bumpy road, one would imagine it being in the banks' interests to safeguard and pad their passengers, keeping them alive and well throughout the journey, so much more could be made when the road finally gets smoother.
